Thursday, July 9, 2009

NAT GAS Act Introduced in Senate

Some interesting news as Boone Pickens continues to put pressure on Washington to come up with an energy plan. Legislation is now being discussed about a bill to promote use of vehicles that run on cleaner burning natural gas.

  • U.S. Senate Majority Leader Harry Reid (D-NV) and Senators Orrin Hatch (R-UT) and Robert Menendez (D-NJ) were joined today by energy-independence advocate T. Boone Pickens to tout new legislation that would boost vehicles that run on clean natural gas. The NAT GAS Act, introduced today by Menendez and co-sponsored by Reid and Hatch, would extend and increase tax credits for natural gas vehicles and refueling.

Background on legislation

  • Expands and modify the alternative fueled vehicle and refueling property tax credits as follows:
  • Makes all dedicated natural gas-fueled vehicles eligible for a credit equal to 80% of the vehicle’s incremental cost. Only some dedicated natural gas vehicles currently can qualify for an 80% federal tax credit
  • Makes all bi-fuel natural gas-fueled vehicles eligible for a credit equal to 50% of the vehicle’s incremental cost. This is the first time bi-fuel vehicles would be eligible for a federal tax credit
  • Increase the allowable incremental cost limits to more accurately reflect the cost of producing or converting natural gas vehicles:
  • For light-duty vehicle, the purchase tax credit cap would be increased by to $12,500 (currently $5,000)
  • For all other vehicle weight classes, the purchase tax credit cap would be doubled
  • Increases the refueling property tax credit from $50,000 to $100,000 per station
  • Allows the natural gas vehicle and natural gas fueling infrastructure credits to be transferred by the taxpayer back to the seller or to the lessor
  • Allows state and local governmental entities to issue tax exempt bonds in order to finance natural gas vehicle projects
  • Allows 100% of the cost of a natural gas vehicle manufacturing facility that is placed in service before January 1, 2015 to be expensed and to be treated as a deduction in the taxable year in which the facility was placed in service. This decreases to 50% after December 31, 2014 and is phased out by January 1, 2020
  • Requires that when complying with mandatory federal fleet alternative fuel vehicle purchase requirements, federal agencies shall purchase dedicated alternative fuel vehicles unless the agency can show that alternative fuel is unavailable or that purchasing such vehicles would be impractical
  • Provides for grants for light- and heavy-duty natural gas engine development

  • The largest hurdle to natural gas vehicles is the infrastructure. If people are going to drive natural gas vehicles, they need to be able to re-fuel them. But fleet vehicles and trucks, which represent a large amount of vehicles on the road, can be the first to change. They drive similar routes in a predictable fashion, which is much easier to know where and when to re-fuel.

    There are a couple of companies working on this as well. Pickens' own Clean Energy Fuels Corp. (CLNE) is one, and Fuel Systems Solutions Inc. (FSYS) is another. Clean energy has been steadily getting contracts for fleet vehicles from various municipalities and companies. Fuel Systems is heavily into components for alternative fuel vehicles, and was on fire last summer when gas prices spiked.

    These stocks are still largely tied to fuel prices, but the NAT GAS act will likely get the ball rolling for these companies to be less dependent on gas.

    Disclosure: None

    Here are the charts:

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